Question

We talked quite a bit about textbook monopoly theory and its potential weaknesses. Why does the theory appear to be inapplicable (that is, why doesn’t there seem to be much evidence in the real world)? (I’m looking for a very specific answer, as we discussed it often.)

Answer 1

The Monopoly Theory defines that the single server is selling his product in the market. The product that he is selling is unique one. There is no substitution for that particular product in the market. So he can able to fix the price of his unique product and can able to take the complete advantage over it.

The price discrimination, single seller, hidh barrier to entry, price maker etc are the some of the characteristics of monopoly.

One of the major weakness or the disadvantage of monopoly theory is restricting output to the market, means that,it charges high price than in a competitive market. It lead to dead weight welfare loss and decrease in customer surplus.

This monopoly theory appear to be inapplicable because,it arises the price above the compitative equilibrium, so it is the most critical loss to the customers.